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Itau Unibanco Seeks to Offload R$3B Non-Performing Loans

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Itau Unibanco Holding S.A.ITUB rose 5.2% on Friday on the NYSE as the company, one of the largest banks by assets in Brazil, is exploring to sell non-performing loans with a face value of about R$ 3 billion ($760 million). The news was first reported by Bloomberg.

Citing three people who have been approached related to the purchase of the debt, the report stated that the concerned loans are part of the Sao Paulo-based bank's corporate credit portfolio. The proposed sale is likely to be completed by the end of this year.

Despite macroeconomic challenges in Brazil, Itau Unibanco reported strong second-quarter 2015 results. The company's recurring earnings of R$6.1 billion ($2.0 billion) was up 22% year over year. The year-over-year rise was primarily attributed to increased operating revenues, elevated managerial financial margin along with higher banking service fees and income from banking charges. However, elevated non-interest expenses were the headwind.

At the end of the second quarter, Itau Unibanco's nonperforming loan ratio (loan transactions more than 90 days overdue) was 3.3%, decreasing 10 basis points year over year. Notably, in August, during a presentation to investors and analysts, Itau Unibanco revealed that it is expecting an increase in its nonperforming loan rate, primarily due to the deteriorated condition of the Latin American nation's labor market. However, Chief Executive Officer of the company, Roberto Egydio Setubal stated, "Despite the expected increase in nonperforming loan rates, I don't see this reaching a worrisome level since we have good risk controls."

The company's credit portfolio, including endorsements and sureties, reached R$531.7 billion ($168.3 billion) as of Jun 30, 2015, up 9% year over year. For 2015, the total credit portfolio is expected to increase in the range of 3% - 7%.

The stressed economic and political conditions in Brazil, which is grappling with huge debt burden and high inflation rate, keep us apprehensive. According to a latest poll release by the Brazil's central bank, the country is expected to witness a decline of 2.8% in its gross domestic product (GDP) this year. Nevertheless, we believe with the potential offloading of the non-performing loans, Itau Unibanco will be able to strengthen its balance sheet.

Itau Unibanco carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign banks space include Erste Group Bank AG EBKDY , Mitsubishi UFJ Financial Group, Inc. MTU and Deutsche Bank AG DB . While Erste Group sports a Zacks Rank #1 (Strong Buy), both Mitsubishi UFJ and Deutsche Bank carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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